Dec 13, 2008

India - Your car may become costlier

Chanchal Pal Chauhan

NEW DELHI: Customers in Delhi, Himachal Pradesh, Punjab and Rajasthan may end up paying more for buying cars despite the 4% cut in excise duty by Best cars to own and drive | Rebates being offered the Central government. These states are likely to levy new local-level taxes, which would offset the benefit of the excise cut.

These states are expected to follow Andhra Pradesh, Gujarat, Kerala, Maharashra, Tamil Nadu and Karnataka who had recently increased local levies in the range of up to 3% on all motorised vehicles. As a result, prices of cars in these states had gone up by Rs 5,000 to Rs 25,000 on different models.

Tamil Nadu has increased road tax from 6% to 8%. Similarly, octroi, a local tax, has been increased to 3% for all cars above Rs 10 lakh and doubled to 2% for car up to Rs 10 lakh in Pune in Maharashtra. Customers in Gujarat will have to shell out an extra 20% surcharge on VAT on all cars.

Potential customers of all car segments have been impacted by these recent changes in state levies. But consumers looking to buy small cars such as Hyundai i10, Maruti A-Star and Chevrolet UV-A were hit harder as the price cut on account of excise relief was lower than the price hike due to higher state taxes.

For instance, the price of Maruti Alto in some states like Karnataka was increased by around Rs 7,000 in October but excise cut resulted into a price drop of Rs 6,593. So net net a customer buying Alto in a city like Bangalore has to pay more today compared to September despite the cut in excise duty.

The incremental burden of state taxes is higher as they are levied on the ex-showroom price of cars, which is much higher than the ex-factory price on which excise duty is imposed. For instance the ex-factory price of Maruti Alto (standard model) the largest selling car in India is around Rs 2 lakh, while its ex-showroom prices in Delhi is around Rs 2.5 lakh.

Car makers are wary of increase in taxes in other states too. Honda Siel Cars India vice-president (sales & marketing) Jnaneshwar Sen said, “The relief in excise duty from the Central government will offset some of the burden of the states levies. If more states increase taxes, the industry may lose the benefit of recent price cut.”

Sales of automobiles are already under pressure with rising cost of ownership and new buyers facing credit crunch as banks have enforced tighter lending norms. Passenger car sales dropped 19.38% to 83,059 cars in November from 1.03 lakh cars in the same month last year.